Asia’s market for very low-sulfur fuel oil (VLSFO) has departed from its record peaks near the beginning of the year, as demand crumbles under seasonal elements and an outbreak in China. At the same time, supply expectations improve, analysts and traders stated.
Cooling VLSFO prices are an early signal of stabilizing market fundamentals after months of dryness triggered by the adoption of recent global marine fuel guidelines in one of the largest overhaul in decades for the shipping and oil industries.
Five trade sources stated the spread of flu-like in China had increased a slowdown in demand for marine fuels, often known as bunkers, that’s typical of the period around the Lunar New Year break, extended this year to battle the disease.
Front-month backwardation within the VLSFO market plunged from a record $22 a ton on January 20 to $2 a ton this week while its refining margin dropped to 2-1/2 month low of $16.35 per barrel above Brent crude, down from a record $29.35 firstly of this year.
An expected climb in China’s VLSFO production attributable to its new tax policies has helped ease concerns about tight supplies.
The weaker VLSFO market also displays a trend of more ships switching to burning marine gasoiln instead of VLSFO, sources stated.